Why Investing for goals is the right way of Investing?
There are a lot of questions one asks before investing. But the most important question remains- where to invest and why? A lot of people seek answers to this based on external factors such as the market value of the investment. However, that is secondary. You must first ask yourself – What goals do you want to achieve with this investment? How far are your goals? How much is your risk-taking capacity for these goals? Simply put, your investments should be based on your goals before anything else. Let us understand goal-based investments better.
What is a goal-based investment?
We all have goals in life. The pace at which we achieve them depends on a number of factors. Financial goals, especially, are heavily dependent on a lot of aware planning. If you don’t have a plan in place, you will realize that not only is chasing goals becoming a far-fetched idea but that you may even be sometimes going a little off-track with your spending.
When you have set a goal for yourself, it becomes extremely important that you lay out a plan that leads you to it. Goal-Based investment is one such planning method that you can use in order to put your savings to soak in maximum investment benefits.
In simple terms, goal-based investment involves going by a plan where you see your goal and you invest accordingly. The first step would be to assess your current financial standing- understanding how much can you shed for investment, how are monthly liabilities being managed, etc. The second step is to target investments that will act as a catalyst to get you closer to your dreams and goals.
Another important element under Goal Based Investment is prioritizing your goals. If you collectively try to hit five goals, there is a higher chance that the process of goal accomplishment will take longer. A human mind, when not gratified with goal achievements, tends to get frustrated and demotivated. In order to avoid this, it is advised that you take one goal at a time.
4 benefits of goal-based investing
1. It maximizes the potential of your savings and reduces debt risk
Keeping all your savings idle in a bank account is not the best of ideas. You could end up overspending it, or indulging in luxury you didn’t plan or didn’t need. Thus, the best way to make money out of savings is to invest them somewhere. What better if this investment can help you get closer to your goals?
2. Long term investments ensure a reduction of risk and higher returns
Goal-based investing is usually long term. And it is a given in the financial world, the longer you invest, the higher the chances of you getting greater returns.
3. No money anxiety
Money anxiety is now on the rise; people are getting worried and stressed about managing their finances. But when you know that you have made an informed decision, the mind gets some space to breathe and relax.
4. Emotional investment and binding
When there is a goal in mind and you know that your investments and plans are tailor-made accordingly, there is a natural tendency to work harder towards it. One becomes emotionally invested in it, thereby increasing the chances of such an investment being a success.
How to execute a goal-based investment?
1. Make up your mind about not expecting hasty returns and quick profits
Long term investments lie at the heart of goal-based investments; therefore, it is necessary to think of the bigger picture while investing. One needs to understand that the longer the investment, the better it is! Quick goal and return gratification aren’t going to be common in the process, but in the end, it will be worth the wait.
2. Set your goals
Before scouting for the best investment plan there is, the primary task at hand includes analyzing what your goals are and if they are feasible or not. Also, you must prioritize them.
3. Assess your risk appetite
Investment involves risks of its own. It is true, long term goal-based investment brings down those risks, nonetheless, they do exist. You need to figure out what your risk appetite is before finally investing. It is ideal to keep an emergency fund aside that balances out any immediate risk factors.
4. Pick an investment accordingly
Every investment plan has its own pros and cons. Now that you have a focus and target in mind, picking an investment plan becomes a streamlined process. You may want to seek the help of professionals while picking the best investment plan to suit your goals.
5. Keep reviewing your portfolio
Your goals might keep changing over time depending on the situation you are in. Therefore, it is important to keep revisiting your portfolio and track where you stand financially. This will not only help you plan ahead for future but will also facilitate in improving your conscious financial knowledge.
To sum it up
Savings become our hard-earned asset and therefore it becomes extremely important to channelize them well in order to leverage them. Goal-based investing facilitates this.
Want to ensure you pick the investments that are in line with your goals? Reach out to financial advisors who will help you keep your investments targeted in order to reap maximum benefits.
My dad has been thinking about investing in order to get more money. He would really like to get some help from a professional in order to be more effective. Thanks for explaining what a goal-based investment is.